'Buy' call on OCK, Gabungan, RHB Bank and Malayan Cement

RHB Research is maintaining a “buy” call on OCK Group with a target price of RM0.75, which is an 28% upside, as the group remains confident in sealing the towerco divestment deal soon.

In a recent meeting with the group’s management, the research house said the planned disposal of a strategic stake in its towerco was in the final leg.

“A positive outcome from the formal deal inked should remove the overhang on the stock.

“The delays in executing an agreement since the third quarter of 2019 have impacted stock sentiment given that the entry of a strategic investor is seen as crucial to expand the group’s regional tower leasing business, ” it added.

Notably, RHB Research pointed out that a deal would partially monetise and unlock the value of its towerco, ahead of a potential initial public offering (IPO) between 2021 and 2022.

Meanwhile, it reckoned the group to be a strong beneficiary of 5G deployment in Malaysia given its good track record. in rolling out 3G sites under the Universal Service Provisioning (USP) projects initiated by the Malaysian Communications and Multimedia Commission (MCMC) and ongoing network deployment for telcos.

“This should translate into incrementally higher industry capex, with 5G services set to be launched in 3Q20, ” RHB Research said.

Moreover, OCK aims to achieve revenue contribution of around 10% to 15% from its solar business in the long run.

Recently, the group has proposed to acquire four solar farms for RM31.6mil, partly funded by the share placement with deal completion completed by the end of 1Q20

“We previously estimated the deal would be earnings neutral based on a 70:30 debt and equity funding. While revenue contribution from solar farms remains small of around 5%, it should further strengthen overall recurring revenues, ” RHB Research said.

FOLLOWING the inking of the agreement between Gabungan AQRS (AQRS) and Suria Capital, higher earnings is expected from the mixed development, One Jesselton Waterfront’ from the development’s value appreciation.

The proposed joint venture agreement between AQRS and Suria Capital was to develop a parcel of land owned by Suria capital into a mixed development, One Jesselton Waterfront loin Kota Kinabalu.

After inking the agreement, Suria Capital’s entitlement pursuant to the joint venture agreement has been revised upwards to 20% from 18% of the minimum net saleable value (NSV) of RM1.1bil.

“The increase in Suria Capital’s entitlement is attributable to the value of landbank within the Kota Kinabalu Central Business District area which has appreciated, ” the research house added.

Currently, AQRS is also working closely with international retail planners and leasing professionals to design the internal layout of the One Jesselton Shopping Mall.

On the other hand, both waterfront condominium and serviced residence have progressed to marketing and preview launching stage.

The research house is maintaining a “buy” call on Gabungan AQRS at a target price of RM1.65.

“We ascribe a price-to-earnings ratio multiple of 13times to financial year 2020 earnings per share, ” MIDF Research said.

MIDF Research said the group’s outstanding construction order book of RM1.8bil as of Sept 2019, would provide earning visibility until 2022.

Meanwhile, the research house expects a better contribution from LRT 3 works on the back of better work progress. The work progress of LRT 3 is expected to peak in the second half of this year.

Although the group’s property sector is subdued, MIDF Research noted that the property sector would continue to contribute positively to AQRS earnings.

Moving forward, MIDF Research foresees AQRS to focus and leverage on their current portfolio to generate more income and achieve better margin despite construction sector headwinds.

RHB BANK

By Maybank IB Research

Rating: Buy

Target price: RM6.50

MAYBANK IB Research is maintaining a “buy” call on RHB Bank with a target price of RM6.50 as the bank’s operational outlook remains stable.

The research house said the bank’s stock of mortgages remained healthy adding that it should sustain high-single digit loan growth while SME loan demand was holding up.

Meanwhile, it added that RHB bank sits on a large fair value through other comprehensive income (FVOCI) investment reserve of RM1.4bil as of end-Sept 2019, which would provide support to earnings if realised.

“The group sees no major asset stress areas at this stage, ” Maybank IB Research said.

Besides this, the research house noted that RHB Insurance was generating strong return on equity (ROEs) of more than 20%.

“Against an approximate 10% ROE for RHB group, the commercial bank generates ROEs that are above that of the group’s while its Singapore and investment banking operations are the drag, with ROEs below 10%, ” it pointed out.

With the potential sale of RHB Insurance to Tokio Marine, Maybank IB Research believed that the group would hang on to the insurance outfit.

Moreover, the research house thinks there is room for higher dividend payouts for the stock in the future.

“Management points out that some of its subsidiaries, such as RHB Islamic Bank, have yet to start paying dividends, but could start to do so, now that its capital ratios are adequate, ” it added.

MALAYAN CEMENT BHD By Affin Hwang Capital

Rating: Buy

Target price: RM4.10

AFFIN Hwang Capital Research has upgraded its call to “buy” from “hold” on Malayan Cement with a higher target price of RM4.10 based on 1.4 times price to book value ratio for financial year 2021 estimates (FY21E).

The move by the research house to upgrade the stock is mainly due to sustainable increase in cement prices from a more rational pricing strategy.

“Selling prices have increased faster than expected post the consolidation in the sector and are expected to hold up,

which is positive for the industry. We expect Malayan Cement’s core net loss to shrink in FY20E before turning profitable in FY21E onwards, mainly due to better revenue and profit margins on the back of sustainable cement price improvements.

“We reduce our 2019 estimate loss by 10%, while we increase our FY21 and FY22 estimate core net profit by 1 to 2-fold, on the back of better cement prices and improving profit margin from lower unit operating costs, ” it said.

Affin Hwang Capital Research believes the group to incur smaller houses in the fourth quarter of financial year 2020 (4Q20), before it turns profitable in 5QFY20 onwards.

Meanwhile, the research house said the current increase has been gradual and acceptable to buyers adding that it has given room for buyers to adjust for the increase in their costs.

As such, it had increased its average cement selling price assumptions to RM225, RM250 and RM260 per metric tonne for FY20, FY21 and FY22 respectively.

Besides this, Affin Hwang Capital Research expects an imminent restructuring with the injection of YTL Cement’s assets would enhance the group’s efficiency.

“The outcome would likely be positive in our view, enhancing earnings per share while creating an entity with about 58% market share in the cement industry, ” it said.